NWA-PCUG Newsletter Article, February 2008
IRS Again Offers Free Online Tax Preparation and “e-Filing”
By Ira Wilsker, APCUG Director;
Columnist, The Examiner, Beaumont, TX; Radio & TV Show Host

Iwilsker@apcug.net
(click to email author)


WEBSITES:
http://www.irs.gov
http://www.irs.gov/efile/article/0,,id=118986,00.html - Free File page http://www.irs.gov/efile/article/0,,id=118992,00.html – Free File Instructions http://www.irs.gov/efile/article/0,,id=118993,00.html - Information http://www.irs.gov/app/freeFile/jsp/index.jsp - List of participating Companies http://www.irs.gov/pub/irs-efile/free_file_agreement.pdf - Free File Alliance Agreement http://www.irs.gov/espanol/article/0,,id=163297,00.html - Free File in Spanish

Whether we like it or not, April 15 is fast approaching. It does not matter if we are due a refund, or owe Uncle Sam a bundle of money, we still must complete our income tax forms and file them appropriately with the IRS. This is a task that very few enjoy, and many more do not relish. While preparing our tax returns becomes more complex and time consuming, the IRS has once again contracted with a number of tax services to prepare our taxes online for free, if we are eligible. According to the IRS, the goal of the free file program is to enable 70% of taxpayers (97 million people, according to the IRS) to take advantage of the free online service; for calendar year 2007 (taxes due April 15, 2008), the calculated ceiling on eligibility for the free service is an adjusted gross income (AGI) of $54,000. In addition to preparing federal tax returns for those eligible, the providers will also “e-file” (electronically file) the returns at no charge to the taxpayer. It should be noted that the IRS does not charge for receiving e-filed returns, but does not currently accept e-filed returns directly from individuals without first going through a third party service, for which a fee may be charged. There is no e-file fee for taxes prepared by the free preparers who participate in the IRS free file program.

The free filing service was created in 2002, and renewed again in 2005, when the IRS created a public – private partnership called the “File Free Alliance, LLC” where the IRS contracted with several tax preparation companies to offer free online tax preparation and filing. The Free File Alliance evolved from a “President’s Management Agenda”, which created a series of 24 “e-government” initiatives designed to improve government to citizen electronic capabilities. Originally, the program was limited to 60% of taxpayers, but the 2005 contract expanded the eligibility to 70% of taxpayers. The current agreement between the IRS and the preparation companies expires in October, 2009. The income eligibility ceiling, currently at an AGI of $54,000, is adjusted annually such that 70% of taxpayers will remain eligible. Members of the Free File Alliance must conform to strict IRS established security and privacy requirements which insure the sanctity of the free filing service.

According to the IRS, there are several advantages and reasons for using the free tax services provided. The IRS claims that users can get their refunds in as little as 10 days, if they opt for direct deposit. Unlike commercial tax preparation offices, the online services are available 24/7, and taxes can be completed and filed at any time of the day prior to April 15. The IRS also claims that the service is environmentally friendly, in that it saves mountains of paper. Users of the free online services will benefit through the automatic checks for accuracy, and will receive a confirmation within 48 hours that the return was received by the IRS.

Users of the free filing service must start at the IRS website, IRS.gov, and initially access the free tax services through the IRS website. Many of the companies that are a part of the Free File Alliance also offer paid commercial tax preparation services, and the only way to get the service for free is to initialize the process through the IRS website. The list of participating companies, 19 of them, includes such well known companies as H&R Block, and software companies such as TurboTax. It is the responsibility of the user to verify his eligibility both for the program (up to $54,000 AGI), and for the Free Alliance partner selected, as many of the partners have additional eligibility requirements for the free service. The user can either browse the list of individual companies (http://www.irs.gov/app/freeFile/jsp/index.jsp), or can use the button “Guide Me To A Company” to narrow down the choices of free tax preparers. Several of the companies, such as H&R Block’s “TaxCut Free File”, “Tax$imple Deluxe Version”, and “eSmart Tax by Liberty Tax Service” are available to anyone with an AGI of less than $54,000, and who are also aged 50 or less. “TaxSlayer Free Returns” is available to anyone aged 25 to 68, or active military who meet the income requirements. “TurboTax Freedom Edition” is free to anyone with an AGI of less than $30,000, or active duty military with an AGI of up to $54,000. “Complete Tax” will do any age with an AGI of $12,000 to $54,000, while “Free TaxAct” will do anyone aged 19 to 54 who has an eligible AGI. Other free preparers have different eligibility requirements, including several that will prepare taxes for people for any age, but have geographic restrictions, in that they only prepare taxes for residents of specific states. Some of the preparers, such as “Online Tax Pros” specify that they also prepare taxes in Spanish. While not a requirement covered in the agreement with the IRS, many of the preparers listed will also prepare and file state income tax returns for residents of states that have a state income tax (Texas does not have a state income tax). While a few will prepare state income taxes for free, most have a nominal charge to prepare and e-file state taxes.

Once the taxes are prepared and completed online through one of the free providers, the returns are electronically checked for accuracy, and then e-filed directly with the IRS. The preparer will receive an electronic confirmation from the IRS that the return was received, and forward that confirmation to the taxpayer, typically within 48 hours of filing. If the taxpayer is due a federal refund, and selects direct deposit, the refund is deposited to the taxpayer’s specified account in as little as 10 days.

The IRS is to be commended for coordinating this service, available to nearly 100 million taxpayers. One improvement to the service that I would like to see is to allow those of us who prepare our taxes ourselves with commercial software, to be able to upload our returns directly to the IRS without having to go through a third party. That would be a great service to the millions of us who choose not to use, or who are not eligible for, the free filing programs, but would like the convenience of e-filing without sending our personal and private information to a third party.

For the eligible 70% of taxpayers who can utilize the free service, there are few good reasons not to use the service. The price can not be beat.

Click here to return to top



==================================================================